VOYAGE Real Estate

Economic & Market Update January 22nd 2024

Economic & Market Update – January 22, 2024

Key Weekly Economic Indicators

As we progress into 2024, the economic landscape presents a mix of challenges and opportunities. This week, the stock markets have shown resilience, highlighted by strong economic data. December’s retail sales exceeded expectations, indicating robust consumer confidence. This surge in consumer spending, however, puts upward pressure on inflation.

Another positive sign is the drop in new weekly jobless claims to their lowest level in nearly two years, suggesting a robust job market. Despite eleven rate hikes over the past year, raising the prime lending rate from 3.5% to 8.5%, the economy seems to be gaining momentum. This could be a double-edged sword, as the Federal Reserve might delay lowering the interest rates, currently at a 24-year high, if the economy doesn’t show signs of slowing.

Stock Market Performance:

Mortgage Rates

Mortgage rates, a crucial indicator for the real estate market, are closely watched. This week, according to Freddie Mac, the rates for popular loan products were:

However, towards the week’s end, rates were higher, indicating a trend towards increased borrowing costs. Freddie Mac’s role, chartered by Congress in 1970, is pivotal in providing liquidity and stability in the mortgage market, which is particularly crucial in times of economic flux.

Southern California Real Estate Market Impact

California Real Estate Market

2023 was a challenging year for the California real estate market, with the California Association of Realtors reporting a significant drop in existing-home sales. The 7.1% year-over-year decrease in December and the largest one-year drop since 2007 can be attributed to several factors, including high mortgage rates deterring move-up buyers.

The example of a homeowner with a $2 million home facing a significant payment increase to move to a $4 million home illustrates the current market’s challenges. Inventory levels are tight, with a 2.5-month supply in December, the lowest in seven months. This inventory scarcity is pushing up prices in the lower ranges, while the upper ranges see price reductions.

Southern California & Luxury Market Impact

In Southern California, the luxury market is experiencing a unique dynamic. The absence of move-up buyers is leading to fewer homes on the market and a stagnation in the upper price ranges. This scenario contrasts with the first-time buyer segment, where prices are increasing due to limited inventory.

Looking ahead, 2024 seems to be gearing up for more activity in the real estate market.

Housing Inventory Trends

The availability of properties for sale significantly influences market dynamics. A report by Realtor.com indicates that active home listings increased by 4.9% annually but fell 4.7% monthly in December. Southern cities, including some in California, have led the way in inventory gains among the 50 largest metropolitan areas.

However, the Western locations, including key areas in Southern California like Los Angeles, saw some of the biggest annual declines in active listings. This trend indicates a market still grappling with inventory shortages, affecting both buyers and sellers.

The Pipeline: New Residential Construction

To understand future market trends, examining new residential construction is crucial. Building permits in December reached a seasonally adjusted annual rate of 1.495 million, showing a positive trend. Housing completions in December also saw a significant increase, indicating a potential easing of the inventory shortage in the future.

Home Sales in Southern California

The total number of sold homes gives insights into the market’s performance. In December, existing homes sales saw a slight decrease, according to the National Association of Realtors (NAR). However, the South, including parts of Southern California, led with a significant share of sales.

The report also suggests that new home sales had mixed results, with some areas showing substantial year-over-year increases. This variation in new home sales across different regions reflects the diverse and complex nature of the Southern California market.

Home Buyer and Builder Sentiments

The sentiment among home buyers and builders is an important indicator of market health. The Home Purchase Sentiment Index (HPSI) by Fannie Mae showed an increase in December, indicating more optimism among consumers, especially regarding mortgage rate declines.

The Voyage Perspective

The economic and real estate landscape as we step into 2024 is a complex blend of challenges and growth opportunities. A resilient stock market, a robust job market, and strong retail sales are promising signs, yet they pose inflationary pressures and may influence the Federal Reserve’s decisions on interest rates. Mortgage rates, pivotal to real estate dynamics, witnessed slight fluctuations this week, with a general trend toward higher rates.

The California real estate market, particularly in Southern California, experienced significant shifts in 2023. High mortgage rates affected move-up buyers, leading to a notable drop in existing-home sales and a tightening of inventory levels. The luxury market in Southern California saw a stagnation in the upper price ranges, contrasting with the increasing prices in the first-time buyer segment due to limited inventory.

Inventory trends showed a mixed picture, with some areas seeing gains in home listings while key regions like Los Angeles faced significant declines. The construction sector, showing positive trends in building permits and housing completions, might alleviate some of these inventory challenges in the future.

Sales of existing homes in Southern California decreased slightly, yet the region still accounted for a significant share of sales, underscoring its importance in the broader market. The mixed results in new home sales across various regions highlighted the diverse and evolving nature of the market.

Finally, improved sentiments among home buyers and builders, driven by expectations of lower mortgage rates and increased confidence in the market, suggest a potential uplift in home affordability and market activity in 2024. As these trends continue to unfold, they will crucially shape the trajectory of the real estate market in Southern California and beyond.

 

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